By Hayden Briscoe and Hua Cheng, AllianceBernstein
In spite of worries about a collapse in China’s property market, we think that the financial system will navigate the coming credit cycle if banks can buy time to resolve loan problems — and receive government support if needed. Continue reading »
By Hayden Briscoe and Jenny Zeng, AllianceBernstein.
Concerns about a possible collapse in China’s property market continue to grow. However, our research suggests that fundamentals are more robust than many people think. The biggest danger lies in the potential for policy mistakes.
Investors are understandably worried about the headlines coming out of China’s property sector. Sales fell in July after having seemed to stabilize in June. For the first half of this year, sales nationally fell by 6.7% year over year, to Rmb3tn (US$488.4bn). That’s the first time such a steep fall has occurred since 2011. Continue reading »
By Paul Hodges of International eChem
China’s July lending level of just Rmb 385bn ($62.6bn) has surprised financial markets, which were expecting an increase in stimulus. But bigger surprises may lie ahead.
The strong link between lending and passenger car sales suggests we may be about to see major changes in the world’s largest car market.
The key to forecasting China’s auto demand since 2008 has been the level of bank lending, as the chart below shows. Continue reading »
By Andrew Collier, Orient Capital Research
The threat of a collapse in the shadow banking market looms over China like a hawk swooping down on its prey. Shadow loans are made outside the formal banking system and are only lightly regulated, making them a significant source of financial stress if the Chinese economy slows significantly. One of the biggest source of shadow loans, Trusts, is showing signs of weakness that could turn into a big problem for China’s economy.
There now is a staggering Rmb 11.7tn in outstanding Trust loans, approximately one-quarter of the entire shadow banking market. Using a list of 31 failed Trusts supplied by the Central University of Finance and Economics in Beijing, we examined them to see what they tell us about the fate the entire Trust industry – and by extension shadow banking in China.
What we found is a disturbing harbinger of things to come for China’s economy. Continue reading »
By Andy Rothman, Matthews International Capital Management
Statistics announced on Wednesday do much to challenge the view that sub-par Chinese consumer spending is to blame for the sluggish rebalancing of the world’s second largest economy away from an over-reliance on investment. For too long this opinion has obscured the crucial truth that China is actually host to the world’s best consumer story.
Real retail sales rose 10.7 per cent in June and 10.8 per cent in the first half of this year, compared to the year earlier period. The strong momentum of this spending springs from solid foundations, with real urban household disposable income rising 7.1 per cent, up from 6.5 per cent a year ago. Continue reading »
By Shaomin Li of Old Dominion University
Saturday evening at a concert hall parking lot, the cars move like sharks, hunting for a parking space. When they find one, some drive in head-on, while some make the effort to reverse.
Obviously, reversing in takes more time and effort than driving in head-on. But it makes it easier, quicker, and safer to exit. So we may conjecture that people who take the trouble to back their cars in demonstrate an ability to delay gratification: they are happy to invest more time and effort now to enjoy the fruits of their labour later. Continue reading »
It’s been three months since Ma Jun – sell-side economist and well-known China bull – quit the world of investment banking and moved from Deutsche Bank to the People’s Bank of China.
Now the German bank has found a replacement – poaching China bear Zhang Zhiwei from Nomura. With apparently rather divergent views on where the economy is heading, either Deutsche or Zhang is likely to be revising its forecasts pretty soon. Continue reading »
Banks intensified their squeeze on mortgage borrowers in China in June, contributing to another sharp decline in real estate sales for the month and ratcheting up the pressure on several city government finances.
Data collected by China Confidential, a research service on China at the Financial Times, showed that only 5 per cent of first time buyers were able to secure a mortgage below the benchmark interest rate. This compared with 8 per cent in May and 39 per cent in June 2013, according to China Confidential’s monthly survey of 300 real estate developer sales offices in 40 cities across the country. Continue reading »
Two of China’s stodgiest state-controlled entities locked horns this week as state broadcaster CCTV accused a major state bank of money laundering and violations of the country’s foreign exchange rules.
In a report aired on Wednesday, China Central Television claimed that Bank of China (BOC), the country’s fourth largest lender, was helping clients circumvent foreign exchange controls using a service called “Youhuitong,” a play on words that translates as “Preferential Transfer Channel.”
The incident highlights the many regulatory grey areas that have emerged as China has launched a slew of financial reform pilot programmes. Many such programmes take the form of broad guidelines, while detailed regulations appear much later, if at all. Continue reading »
If you’re an emerging market and there’s a geoeconomic grouping you’re looking for, you’ve got a few to choose from. In Asia there is Asean - ten countries in search of common ground. In Latin America there is Mercosur - five countries in search of common tariffs. And from the Atlantic west to the Black Sea there is Asia-Pacific Economic Co-operation – four adjectives in search of a noun.
But none of these has the distinction of having been a marketing campaign by Goldman Sachs got out of control. The Brics nations, apparently noticing a small clearing in the densely-thicketed field of international relations, seized on the designation to set up their own diplomatic process. The sixth leaders’ summit will take place next week in Fortaleza, Brazil, with the host nation hopefully performing better than at its other major international gathering.
Continue reading »
By Liao Min, China Banking Regulatory Commission
Shadow banking is a risky business, for sure. That’s the reason why the Financial Times ran a recent series on shadow banking, with the first article investigating China. In China, shadow banking is a broad concern, given liquidity mismatches in the system, opaque asset quality and the fact that the end-users of such finance are often in the riskier sectors of the economy such as real estate and those struggling with over-capacity.
What’s worse, it has exposed traditional banks to increased wholesale funding and greater fragility. Therefore, Chinese banking regulators, in common with their global counterparts, are concerned about and eager to learn how the shadow banking sector is evolving and reshaping finance in China and around the world. Continue reading »
By Guonan Ma, Bruegel
Against a backdrop of weakening domestic demand, and in the slipstream of a major debate about whether Chinese monetary policy in the last year has been too restrictive, there have been definite signs of Chinese monetary loosening in recent weeks. This makes sense. Timely and measured monetary easing will support growth, facilitate structural rebalancing and underpin rapid economic reform.
There is little doubt that Chinese growth has been losing momentum. During the past few quarters there were clear signs of rising inventories, slumping property sales, producer price deflation, declining consumer price inflation, weakening corporate earnings, slowing investment and anaemic industrial production. Fortunately, private consumption is still holding up. Continue reading »
By Andrew Collier, Orient Capital Research
Beijing’s desire to pump up the Chinese economy is leading it into dangerous territory.
Although China has piled on debt, the country has been relatively cautious about one of the big areas that led to the U.S. financial crisis: leverage. It was the slicing and dicing of mortgages into digestible bite-sized chunks called derivatives that was a key contributor to the U.S. financial meltdown in 2007. Once they unwound, they threatened the banking system itself.
Until recently, China has avoided complicated derivatives and other forms of leverage. However, desperate to keep the economy from slumping, the Chinese reluctance to wander down the leverage path seems to have faded. Continue reading »
By Qu Hongbin, Co-Head of Asian Economic Research, HSBC
For many, China’s growth model, which has delivered average annual GDP growth of 10 per cent over the past three decades, simply looks wrong: a national savings rate of around 50 per cent is unheard of in a large, modern economy.
A typical diagnosis states that China invests too much and consumes too little. The prescription is “rebalancing” – moving the economy away from investment towards consumption-led growth. However, a consumption-led growth model has little in theory or evidence to support it. Continue reading »
By Nicholas Borst, Peterson Institute for International Economics
There has been a significant amount of buzz regarding the rapid growth of internet finance in China. The scope of internet financial products includes money market funds, insurance products, third-party payment platforms, peer-to-peer (P2P) lending, and other more exotic investment products. In other words, internet finance is springing up largely beyond the remit of the traditional banks.
The pace of growth has been rapid enough to inspire fear and resentment on the part of the banks even though the total amount of money invested in internet financial products is still small relative to the enormous size of the traditional financial sector. The emergence of internet finance in China raises several key questions: What is behind the growth of internet finance? What are the risks and benefits from investing in these products? And what will the impact be on the rest of the financial system? Continue reading »